Airlines flying toward record $33bn profits

File photo of logo of the International Air Transport Association (IATA) displayed in Kuala Lumpur.

File photo of logo of the International Air Transport Association (IATA) displayed in Kuala Lumpur.

The aviation industry is set to post a second consecutive year of net profits in 2015, nearly doubling them to $33 billion (30.1 billion) thanks to low fuel prices, its trade association said.

“Our outlook for this year has improved to a $33 billion net profit,” said Tony Tyler, head of the International Air Transport Association.

That is an increase from the $29.3 billion the association had forecast in June.

The success of Gulf airlines in the long-haul sector isn’t enough to carry the Middle East region, where the 2015 profit is now seen as coming in at $1.4 billion instead of the earlier forecast $1.8 billion.

The 90 percent jump from the record $17.3 billion in profit the global aviation industry earned last year is due in part to the sharp reduction in fuel costs as global oil prices have plunged by over 60 percent from highs hit last year.

And the industry expects to have winds at its tail in 2016, with IATA forecasting profits will rise to $36.3 billion, Tyler said.

While the figures are big, the net profit margin is still only 4.6 percent this year for the industry, after years of losses.

The return on capital of airlines only barely exceeds their cost of capital, mostly thanks to low interest rates.

But it is not only shareholders, but also customers who are benefiting, said the IATA, as airfares have become more competitive and airlines invested in new aircraft.

On a regional basis, it is North American airlines that are earning the lion’s share of the profits, at $19.4 billion this year, but will see that slip to $19.2 billion in 2016.

At a profit of $21.4 per passenger, the IATA said their financial performance was at the top of the industry.

European airlines are expected to post profits of $6.9 billion this year and push that up to $8.5 billion as many start to book higher savings on fuel which is often bought ahead of time at agreed prices. But the profit of $8.80 per passenger is far behind North American airlines.

Despite the slowdown of China’s economy IATA expects airlines in the Asia-Pacific region to increase their profits to $5.8 billion in 2015 and then to $6.6 billion in 2016, again as fuel cost savings are realized.

IATA expects to recover most of the lost ground with a $1.7 billion net profit in 2016.

The association expects the profit earned by Latin American airlines to actually shrink as Brazil’s economic crisis deepens, as those of other countries dependent upon exports of commodities whose prices have slumped in recent years.

African airlines are also expected to earn less profits due to instability hurting tourism.


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